EARNINGS / PART 1 Westcoast Energy: Warm Winter Weather Reduces
Westcoast Energy's First Quarter Earnings
TSE, ME, VSE SYMBOL: W
NYSE SYMBOL: WE
APRIL 30, 1998
VANCOUVER, BRITISH COLUMBIA--Westcoast Energy Inc. (Westcoast)
today announced that net income applicable to common shares was
$103 million for the first quarter of 1998 compared with $122
million in 1997. Earnings per common share were $0.99 for the
first quarter of 1998 compared with $1.20 in 1997. The Board of
Directors declared a dividend of $0.31 cents per common share,
payable on June 30, 1998.
"The reduction in earnings is directly related to the unusually
warm temperatures in most of the Company's gas distribution
franchise areas," said Michael Phelps, Chairman and CEO of
Westcoast. "With temperatures approximately 17 percent warmer
than normal in Ontario, gas distribution earnings showed a
significant decline."
Excluding the impact of weather, earnings per common share were
$1.18 for the first quarter of 1998 compared with $1.21 in 1997.
Higher contributions from the Pipeline and Field Services
Divisions, new pipeline projects, continued growth in the number
of customers, higher service and rental revenues, higher rate
bases, international operations and tax savings were offset by
development spending related to Union Energy - our retail energy
services initiative, lower allowed rates of return on common
equity, losses incurred in the energy marketing business and
higher interest expenses.
"For Westcoast, 1998 is a year in which we are focusing our
efforts on developing the major projects that we successfully
initiated previously," said Phelps. This includes the Cantarell
nitrogen project in Mexico, the Maritimes & Northeast Pipeline,
Union Energy, and Enlogix. The latter is responding to new
information management opportunities in the deregulated energy
marketplace. As well, we will continue with our efforts in the
development of natural gas- fired electrical generation
facilities, such as the Island Cogeneration Project near Campbell
River, British Columbia and the NB Power Project in Saint John,
New Brunswick, which was announced today at Westcoast's Annual
General Meeting.
/T/
Westcoast Highlights
FIRST QUARTER RESULTS
3 Months Ended MARCH 31 ($million)
1998 1997
Consolidated Revenue 2,002 2,235
Net Income to Common 103 122
Earnings Per Share $0.99 $1.20
Operating Cash Flow 203 220
The figures used in this news release are presented in Canadian
dollars.
/T/
Westcoast Energy Inc. (TSE: W; NYSE: WE) headquartered in
Vancouver, British Columbia, is a leading North American energy
company with assets of $10 billion. The Company's interests
include an integrated natural gas gathering, processing and
transmission system, natural gas storage facilities and gas
distribution, power generation, and international energy
businesses as well as financial, information and energy services
businesses.
Highlights
- Warm winter weather reduces the first quarter earnings.
- Net income applicable to common shares was $103 million for the
first quarter of 1998 compared with $122 million in 1997.
- Earnings per common share were $0.99 for the first quarter of
1998 compared with $1.20 in 1997.
- Excluding the impact of weather, earnings per common share were
$1.18 for the first quarter of 1998 compared with $1.21 in 1997.
- In April 1998, an agreement was signed with NB Power, to
proceed with development efforts to convert a 280-megawatt heavy
fuel oil- fired generating plant to a natural gas-fired combined
cycle plant located in Saint John, New Brunswick.
- The Board of Directors declared a common share dividend of
$0.31 cents per common share, payable on June 30, 1998.
CONSOLIDATED OPERATIONS
Net income applicable to common shares was $103 million for the
first quarter of 1998 compared with $122 million in 1997.
Earnings per common share were $0.99 for the first quarter of 1998
compared with $1.20 in 1997.
The reduction in earnings is directly related to unusually warm
temperatures in most of the Company's gas distribution franchise
areas. In particular, the Ontario operations experienced weather
which was approximately 17 percent warmer than normal.
Excluding the impact of weather, earnings per common share were
$1.18 for the first quarter of 1998 compared with $1.21 in 1997.
Higher contributions from the Pipeline and Field Services
Divisions, new pipeline projects, continued growth in the number
of customers, higher service and rental revenues, higher rate
bases, international operations and tax savings were offset by
development spending related to our retail energy services
initiative, lower allowed rates of return on common equity, losses
incurred in the energy marketing business and higher interest
expenses.
Consolidated operating cash flow was $203 million for the first
quarter of 1998 compared with $220 million in 1997. Inclusive of
non-cash working capital changes, consolidated operating cash flow
was $331 million for the first quarter of 1998 compared with $282
million in 1997.
SEGMENTED INFORMATION
The operations of the Company have been grouped according to the
following strategic businesses:
Transmission and Services - natural gas gathering, processing,
transmission, energy marketing and related services;
Gas Distribution - natural gas distribution, transmission,
storage and related services;
Power Generation - electrical and thermal energy generated from
natural gas;
International - international operations and development
projects;
Other Activities - other activities, including unallocated
corporate financing expenses.
TRANSMISSION AND SERVICES
The contribution to net income applicable to common shares from
the Transmission and Services business was $29 million for the
first quarter of 1998 compared with $24 million in 1997.
The increase in earnings is primarily due to a higher contribution
from the Pipeline and Field Services Divisions, and allowance for
funds used during construction applicable to the Maritimes &
Northeast Pipeline and Alliance Pipeline projects, offset
partially by losses incurred in the energy marketing business.
WESTCOAST PIPELINE AND FIELD SERVICES DIVISIONS
The contribution to net income applicable to common shares from
the Pipeline and Field Services Divisions was $30 million for the
first quarter of 1998 compared with $22 million in 1997.
The increase is primarily due to higher earnings realized under
the multi-year toll settlement which was implemented in the second
quarter of 1997.
The Pipeline and Field Services Divisions' natural gas throughput
was 183 billion cubic feet for the first quarter of 1998 compared
with 182 billion cubic feet in 1997.
GATHERING AND PROCESSING SERVICE
Westcoast and its shippers have, by mutual agreement, postponed
the contract renewal date until May 15, 1998, for gathering and
processing capacity for the gas year commencing November 1, 1998.
Westcoast anticipates approximately 7 percent of the treatment
capacity will not be renewed by current shippers. With record
drilling in northeast British Columbia, the Company feels
confident that the majority of this capacity will be recontracted.
REGULATION
The Company and its major customers have agreed to a framework for
light-handed regulation of the Field Services Division's gathering
and processing facilities which are regulated by the National
Energy Board (NEB). The framework is intended to become effective
immediately upon approval by the NEB.
In March 1998, an application was filed with the NEB for approval
of this framework and a decision is expected during the summer of
1998.
ENERGY MARKETING
The energy marketing business incurred a loss of $8 million for
the first quarter of 1998 compared with a loss of $2 million in
1997. The lower earnings are primarily due to the Company's 50
percent interest in Engage Energy which incurred a loss, after
acquisition and financing costs, in the first quarter of 1998,
reflecting lower margins due to warmer weather and continued
intense competition.
DEVELOPMENT PROJECTS
PIPELINE PROJECTS
The Company is continuing its development work on the Maritimes &
Northeast Pipeline, the Alliance Pipeline, the TriState Pipeline,
and the Millennium Pipeline projects.
In February 1998, the Company purchased an additional interest in
Alliance from an existing Alliance partner increasing the
Company's interest to approximately 14.5 percent. The NEB hearing
applicable to the Alliance Pipeline Project, which commenced in
January 1998, is expected to be completed shortly.
LNG PROJECT
In 1997, Westcoast Gas Services Inc. proposed the development of a
$120 million liquefied natural gas (LNG) storage facility to serve
the peak-day requirements of markets in southern British Columbia.
The LNG storage facility is one of 4 LNG projects and 3 pipeline
projects that were proposed to the British Columbia Utilities
Commission (BCUC) as alternatives to the Southern Crossing
Pipeline proposed by BC Gas Utility Ltd., a customer of the
Company. The Southern Crossing Pipeline is a proposal to build a
major transportation pipeline in southern British Columbia.
In April 1998, following a lengthy hearing process, the BCUC
denied the application for the Southern Crossing Pipeline. In its
decision, the BCUC concluded that BC Gas requires a peak demand
shaving resource located in close proximity to the greater
Vancouver area and also concluded that an LNG option is preferred.
Subject to BC Gas investigating other potential sources for peak
demand shaving capacity, the BCUC directed BC Gas to issue a
request for proposals for LNG service.
GAS DISTRIBUTION
The contribution to net income applicable to common shares from
the gas distribution business was $79 million for the first
quarter of 1998 compared with $102 million in 1997.
The reduction in earnings is directly related to unusually warm
temperatures in most of the Company's gas distribution franchise
areas. In particular, the Ontario operations experienced weather
which was approximately 17 percent warmer than normal.
The reduction in earnings also reflect lower allowed rates of
return on common equity and development costs related to the new
non- regulated retail energy services initiative offset partially
by continued growth in the number of customers, higher service and
rental revenues, and higher rate bases.
UNION GAS
The customer base of Union Gas increased by approximately 4
percent to 1,049,000 at March 31, 1998, from 1,010,300 at March
31, 1997. Union Gas' natural gas volumes were 358 billion cubic
feet for the first quarter of 1998 compared with 405 billion cubic
feet in 1997.
In January 1998, Union Gas and Centra Gas Ontario were amalgamated
and continue to carry on their operations as Union Gas Limited.
Union Gas requested the Ontario Energy Board to approve the
transfer of its retail merchandise, rentals and servicing programs
to Union Energy, an affiliated, non-regulated retail energy
services business. The transfer involves approximately $475
million of net assets for cash and preferred shares.
The hearing to approve the transfer of these programs has been
completed and a decision is expected in the second quarter of
1998.
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